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Thread: Economic Naturalist Question #8. Why do airlines charge much more for tickets purchased at the last minute, while Broadway theaters follow the opposite practice? 
In an earlier thread, I explored why introductory economics courses appear to leave little lasting imprint on the millions of students who take them each year:
Students learn more effectively when they pose interesting questions based on personal experience, and then use basic economic principles to help answer them. This exercise became what I call my “economic naturalist” writing assignment.
My former student Gerasimos Efthimiatos began his paper by observing that theater fans who go to the TKTS window in New York’s Times Square in the afternoon can purchase half-price tickets to many Broadway plays performed the same evening.
But someone who books a plane ticket on the same day as the flight can expect to pay a substantial premium, sometimes more than 100 percent. What explains this difference?
An empty seat when a flight takes off or when the curtain rises means a permanent loss of revenue. Both airlines and theaters thus face powerful incentives to fill as many seats as they can.
The challenge in both cases is to avoid selling discount seats to those who would have paid full price for them.
Airline industry executives discovered early on that business travelers are more likely than vacation travelers to change their travel plans at the last minute. Business travel decisions are also known to be less sensitive to airfares than leisure travel decisions.
The airlines’ strategy has thus been to charge full price to those who reserve at the last minute (disproportionately business travelers) and give discounts to those who reserve well in advance (mostly leisure travelers).
The balance of forces is slightly different in the theater industry. High-income people are less sensitive to ticket prices, as in the airline industry, but unlike high-income air travelers, they are unlikely to buy tickets at the last minute.
Buying half-price tickets from the TKTS window confronts theatergoers with two hurdles. One is the need to stand in line, often for an hour or more. Few high-income persons are willing to do that just to save a few dollars.
More important, discount tickets are available for only selected shows, generally not the most popular ones. High-income persons have high opportunity cost of time and are more likely to want to spend a precious free evening watching only the shows they most want to see.
Low-income theatergoers, who are much more sensitive to price, find both hurdles much easier to clear. And absent the option of standing in line for a discount ticket at TKTS, they might not get to see a Broadway show at all.
Although the specific hurdles are strikingly different in the two cases, both have the effect of filling more seats—and hence of reducing the average cost per customer served—relative to what would have happened in the absence of these hurdles.
